Grading standards

I see few mentions of "grade" among sellers of stocks and bonds. If I do see any grades, they sound like "beautiful," "worn and punched," "folded in thirds," and the like. Formal certificate grading standards have been around for a long time, but truthfully, none have ever gained much traction among either buyers or sellers.

  • George H. Labarre. 1980, Collecting Stocks and Bonds, 3 volumes, George H. LaBarre Galleries.
  • Howard Shakespeare, 2002, The Scripophily Guide, International Bond and Share Society. *
  • Rainer Stahlberg, 2002, Standard Catalog of Stocks and Bonds, Krause Publications.

Grade LaBarre Shakespeare * Stahlberg
Clean and crisp, as issued. As if straight from the printers, without the slightest flaw; usually seen only on unissued pieces. No folds, no staples, no wear.
(Extra Fine)
Clean but perhaps traces of folds, almost as issued. In almost perfect condition, signs of handling are almost invisible. Slight wear, no folds.
(Very Fine)
Minor folds or creases, showing a little wear. In very good condition, but definite signs of use – a fold, slight edge damage, light general wear, slight discoloration, but no pieces missing. Minor trace of wear.
Very creased or worn, but still perfectly clear. Considerable signs of use, pronounced folds, small pieces missing from the edge, stained, etc. Folds and wear.
(Very Good)
Is not very good at all. Poorer than F, such a piece would have suffered considerable damage, probably badly torn or with a large piece missing, badly stained, etc. Dealers will normally not offer material in VG grade; nor will auction houses, other than in a large lot of mostly better pieces.
Extremely creased and worn, an item that has seen much circulation. Plenty of folds or wear, staple holes.
Some damage with staining or heavy wear.

* You may download The Scripophily Guide (2002) for free from the International Bond and Share Society.

These grading standards mention problems such as folds, staples and wear, but all leave a lot of room for interpretation. Identically-priced certificates could easily span two, possibly three, grades when other factors are considered. Notice that none address the issue of cancellation and appearance, the factors most likely to affect price.

How many collectors CARE about grading?

None of my several hundred contributors have ever asked about or discussed grading. NOT a single one !!!

Practically every collector tries to collect the best certificate possible when there are choices. I hope that every collector appreciates that our hobby is typified by the presence of great rarities, so it is usually better to acquire a certificate when the opportunity arises rather than wait for a better certificate to come along — maybe. Anyone who has been in the scripophily hobby for more than a few years almost certainly owns at lease one certificate represented by fewer than ten examples.

Grading services

I am aware of two professional services that grade certificates on a fee basis:

  • PASS-CO Professional Authentication Services & Standards Co, LLC, established 2006; graded certificates from inception.
  • PMG (Paper Money Guaranty) established 2005; graded scripophily since 2019.

PASS-CO uses familiar certificate grading standards, ranging from P (poor) to CU (certificate uncirculated). PMG uses an elaborate 70-point grading scale developed to grade currency.

PASS-CO Website PASS-CO Grading Standards PASS-CO Fees
PMG Website PMG Grading Scale * PMG Fees *
* Standards developed for bank notes; scripophily not addressed directly.

Grading is a negative pursuit

Once someone begins grading for ones' self. they quickly realize that a good grader's principal goal is to identify problems. A grader's reputation rests entirely on its ability to spot problems, no matter how minor. Miss a flaw and a grader's reputation takes a hit. It does not matter whether the grader is a dealer or a third-party grading service.

What about cancellation?

Currency grading existed before scripophily was a recognized hobby. Experienced collectors, especially those who have come to scripophily from the paper money hobby, have noticed that grading systems for scripophily are simply currency grading standards kludged onto the certificate hobby. No matter how well-meaning, those systems have avoided dealing with the elephant.

The ELEPHANT in the room

CANCELLATIONS, etc, etc., etc.

According to my current database, 90% of all collectible railroad STOCKS AND BONDS are cancelled in some manner. That includes all certificates encountered so far, regardless of whether they were issued, unissued, or specimens. The cancellation rate for OTHER kinds of documents (transfers, certificates of deposit, Dutch fund certificates, etc.) is much lower at about 50%. Only about 35% of certificates in the coal mining specialty show cancellations.

What about stubs?

Photos by Sidekix Media and Kaffeebart on Unsplash modified to place the elephant in the room.

If grading services are anything, they are sticklers. So far, none have decided what to do about stubs. Stubs were printed along with stock certificates, but never intended for issuance. Stocks were removed from stubs when issued. Stubs remained as ordinary bookkeeping records and nothing more. When stock certificates were returned to companies during transference, they were re-attached to their matching stubs with glue. Many of the issued and cancelled stock certificates now available to collectors have those otherwise worthless "records" attached to them with glue. Where in any of the currency grading standards is there mention of attached paper? And what if there are receipts, letters, and notes attached with staples? 

Almost every collector owns certificates from which stubs have been removed by water or steam. How should someone grade certificates that show brown stains along the left edge? They are "stains," aren't they? On the other hand, removal of stubs allows whole certificates to be viewed without stub remnants getting in the way.

Speaking strictly for myself, I will always take glue stains over stub remnants.

How many annoyances should someone ignore in grading?

Every certificate collector deals with visual annoyances. How should a grader handle cancellations that were meant to create visual impairment and deface certificates so much they could never be used again? Some of the worst cancellations include:

  • pen and crayon marks
  • cut-out cancellations
  • rows of holes from roulette punches
  • multiple rubber stamp impressions

Certain kinds of cancellations definitely cause collectors to decrease their bids or prevent them from buying entirely. Especially cancellations that remove large pieces of paper. Still, those onerous price penalties still result in prices that are within the normal ranges of prices I record.

What is the goal of third-party grading?

In looking for commentary about third-party grading in other hobbies, it appears that buyers and sellers are looking for third-party grading to provide:

  • guarantees of authenticity
  • professional encapsulation
  • expert opinions on grade
  • improved liquidity (therefore, easier selling)
  • more reliable pricing

How many of those goals square with scripophily collecting?

I personally don't think it is hard at all to authenticate a stock or bond. I think it is actually more difficult to figure out whether a company was legitimate. On the other hand, deciding whether some certificates were issued CAN be hard, but it is still not rocket science.

And it doesn't take any great skill to place a certificate in a polyester (Mylar, Melinex) holder. Admittedly, sealing a holder takes special equipment. On the other hand, none of the grading services seem to want to address the potential problem and threat of encapsulating certificates with lower quality pulp paper which can potentially accelerate acidic deterioration because of the lack or air flow..

I have no quarrel about acquiring a professional opinion on grading. It is the effect of that determination on collector value that I think is lacking.

For example, try to imagine asking someone from the paper money or coin hobbies to look at our collections. How impressed would they be? They would see our collections for what they are: workaday security documents with all sorts of scribbles, folds, revenue stamps, pen marks, staple holes, punch holes, rubber stamp impressions, and even paper aging. And they would almost certainly notice some items were in really good shape with no signatures or markings anywhere. Not knowing the purposes of our hobby, they would not realize that unissued remainders are the least expensive and least sought-after items in our collections.

If a collector from another hobby were to ask what factors go into establishing collector values, we would need to discuss:

  • location where issued
  • fame of the company
  • specialty
  • serial number
  • personal desire
  • vignette
  • signatures
  • revenue stamps
  • stubs
  • issuance
  • numbers of staple holes
  • degree of staple rust
  • types and extents of circulation-induced stains and ink smears
  • stub removal stains
  • presence of stubs or stub remainders
  • presence or absence of imprinted and adhesive revenues
  • locations of adhesive revenue stamps when not in dedicated stamp frames
  • clarity of written signatures, serial numbers and shares
  • types of officer signatures (handwritten, typewritten, facsimile)
  • marks picked up during transit through brokerages and clearing houses
  • pencil marks left by dealers
  • ink burns, halos and show-through
  • folds, locations and severities
  • fold separations
  • paper type (pulp versus rag)
  • paper yellowing
  • presence of tape
  • cancellation

What do you mean by cancellation? Well...

  • types and numbers of cancellations
  • sizes of cancellations
  • locations of cancellations
  • obtrusiveness of cancellations
  • amount of paper removed by cancellations
  • degrees of cancellation through officer signatures
  • degrees of cancellation through valuable autographs
  • cancellation through vignettes

I'm afraid professional grading survices have overlooked a few crucial purchasing factors.

If asked how I would grade a certificate with some of those problems, I'm pretty sure I would say, "What does it matter? It's about the whole package. It's about the company name. It's about historical significance. It's about overall appearance! It's about desirability to the collector." It's certainly not about being housed in a sealed holder.

To me, trying improve liquidity and reliable pricing in our hobby is the definition of a pipe dream.

IS THERE A WAY to quantify appearance?

One of the things advanced certificate collectors pursue is issuance. While issuance without cancellation is a desire, most issued certificates were cancelled. I don't want to get crosswise with my colleagues in the grading community, but I personally have a problem calling ANY issued certificate "uncirculated." Even more so if any certificate has been cancelled. Of course it was circulated. DUH! Cancellation has too much of an effect on price to be ignored.

The most egregious example I have catalogued was a professionally-graded certificate proudly stamped with an "Uncirculated" grade. That particular certificate was "okay" as an average, run-of-the-mill bond. It was unfolded without any staple holes, but it wasn't anything special. However, its primary feature was thirty-eight (!) punch cancels.

My experience suggests that most collectors tend to make the bulk of their buying decisions based on very personal factors such as:

  • company name, ancestral company, or descendent company
  • type of company
  • location of company
  • vignette subject
  • celebrity autograph
  • type of railroad equipment used (particularly narrow gauge)
  • and maybe other less popular factors such as date, printing company, serial number, denomination, color, etc.

Appearance matters when it comes to buying, but its ranking among other factors is personal, unknowable, and highly flexible. Appearance can factor into a purchase at any point. As a highly generalized collector, the certificate mentioned above would never have captured my attention. It was too common. Thirty-eight (!) punch holes would have turned me off immediately. I don't need a certificate like that, no matter whether it has a third party grade or not. Maybe an "official" grade might have mattered to a beginner; I can't say. But I can say without reservation that none of my intermediate or advanced collectors would have given that certificate a second glance. Appearance would most assuredly have played a role.

Will third-party grading catch on in the scripophily hobby?

Without purposely meaning to take sides, I believe PASS-CO has the clear edge in quantifying appearance. It grades the condition of paper like any other grader, but also considers more nebulous concerns such as eye appeal, aesthetics, and desirability. PASS-CO calls it their PASS-CO "SCORE" (Standard Compilation of Relevant Elements) and charges a bit more for the determination. Whether the SCORE will improve liquidity and achieve reliable pricing in light of the highly fractured marketplace, I cannot say.

Third-party grading is a big deal in many hobbies, but it is off to a very slow start in scripophily. I have recorded remarkably few sales of graded certificates in the railroad and coal specialties. Out of that small number, my tracking of serial numbers has given me the capability of recognizing that a few certificates have already been removed from grader's holders.

I have also seen a few eBay sales of certificates with third-party grades and abnormally low prices that I "wonder about." Why would someone sell a professionally graded certificate for less than the price of grading?

I am as curious as the next guy about where third-party grading is going. I am neither promoting the move nor condemning it. I do say that third-party grading needs to adjust its grading around the reality that scripophily is a different sort of hobby. It is not the same hobby as currency.

Grading standards need to come to grips with the purpose of the hobby, which is collecting old securities. The necessity of being formally issued means that the vast majority of issued documents used as true securities should probably be graded AU and below.

Wagner Palace Car certificate with pen and eight rubber stamp cancellations

I commiserate with third-party graders in one way. If they ever decide to grade all the things that make certificates desirable, they are going to need to come up with an entirely new system that somehow quantifies normal imperfections. At present, PASS-CO holds the edge.

As a collector, I want paper condition to be nice. But I never buy on paper condition alone. I buy on the whole package: condition, cancellation, rarity, appearance, color, vignette, and historical significance. Unless paper is toned and brittle, the "condition grade" of a certificate is probably the least important part of my purchase considerations. If personally faced with the choice between:

  1. a certificate graded "uncirculated" with a single punch hole in the vignette
  2. the same variety graded "very fine", with six or eight punch holes and none in the vignette

I will choose #2 every time. How about you?